plunge. retail investors are japonica -- are buying into japan's post. the first dayto of trading. what does it tell us about japan's economy? david: welcome to "bloomberg ." i'm david westin. stephanie: i'm stephanie ruhle. we will have a big morning because bill cohan is in the house, a bloomberg intervening editor. he also has quite a few -- he is a bloomberg contributing editor. he also has quite a few books. house,tockman is in the former omb director and a man with a countless amount of opinions. with strong views.

if you have any questions for theer man, send us questions at bloomberg . we have got to talk about valeant . there is a lot to cover. first we have to get to bloomberg news. vonnie: yesterday. republicans and no to marijuana in a key off year election. matt devon defeated jack conway -- matt devon defeated jack conway. defeated a soundly pair of marijuana questions. one plan would have cleared the drug for medicinal and recreational use. the other would have control of marijuana farms in the hands of a few investors. the crew of the doomed russian jet had no warning of trouble

before it crashed in the tunisian desert. no black boxes include indication of mechanical problems. everyone on board was killed when their airbus crash -- when the airbus crashed saturday. the bodies of 33 victims have been identified. the changing of the guard today as a new prime minister is sworn in. the 43-year-old son of the art is canada second youngest leader ever. as we check on the markets, here is matt miller. breaking newsme on earnings. time warner is out with earnings that beat estimates. .e are looking at $1.25 time warner is just out with earnings, and it has beaten the premarket trading.

we see year to date -- we see the 12-month chart of about 3%. after a down day yesterday, we are seeing a bounce with s&p futures up three points, dow futures up 28. janet yellen will begin her 10:00 a.m. today, and the market will be glued to her every word. that is because there is now a 52% chance, according to futures traders, that the fed will hike interest rates in december. coming up very quickly, you see we are looking at a 52% chance, up from 33% a month ago. so it is still not overwhelming, but it is a gain. , had beenyield climbing themselves as a result of that expectation. the euro -- take a look at that because mario draghi is expected -- now he it has -- now he has

put it in doubt, but he is expected to expand his qe program because we are looking $1.09 for the euro. valeant was planning an expansion with the mail-order pharmacy, according to a bloomberg exclusive. david, i did not want to talk about this story. and saidover valeant that we are not going to give it attention. then i realized david stockman had something to say. when i read his notes this morning, if you need evidence that wall street is a financial a ignition,ting for look no further than the recent meltdown in valeant pharmaceuticals. that got my attention. set the stage for us. valeant had a relationship with a specialty pharmacy called philidor.

only a few people knew they had an ownership interest, and then it was found that philidor was ors'prescriptions with a report they would use this network of pharmacies to shop around insurers when it would get rejected. that was last week. then we just reported late last eantt that before valle cut ties with philidor -- stephanie: after being out in public. with a lot ofed people familiar with philidor operations, and they were going to take drugs made by bausch & lomb and some ophthalmology drugs and run them through philidor. there were some other drug units they were going to run through philidor. appeared to let

those employees go and then they would immediately be hired by philidor to run parallel programs to what they were running at valeant. if you have these employees shifting over and then immediately going to work for the thing -- david: from day one, they said they were not really separate companies. stephanie: they are not. they just reached herbalife. david: there were like 40 or so nt thates of valea switched over to philidor. they gave them a termination bonus and then they hire them right over at philidor. son of a gun. stephanie: 30 analysts cover valley and. .8 had it as a buy none of these harvard analysts did their homework? marco: this is nothing but a giant m&a machine -- roger:

this is nothing more than a giant m&a machine. to the point where it is going to be a $20 billion monster. they did i think $150 billion deal. stephanie: why are we going to blame this on banks? this is a bad pharma company. david: i am not blaming it on banks. i am saying there is nothing there but a constant series of acquisitions, and then they/the r&d budget and lay a bunch of people off. you cannot see what is happening, but here is the thing i want to say. you do not take a company from $15 billion market cap 36 months ago to $90 billion at the peak in august. you do not gain that much from an m&a roll up and then lose market cap down to $34 billion in 90 days when people start to figure out that this is a giant speculation. it is also a cash burning machine. i would point out that in the last year they generated 2.5

billion of operating cash flow, spent $16 billion on deals and capex and other investments. since 2009, they spent $30 andion on deals and capex generated only $7 billion of cash flow. it happened because they could borrow unlimited amounts of money which, in the fed, has seen interest rates that are in fact around nothing. david: let's take everything david just said at face value. isn't the market working? they went up too high. stephanie: i like this, david. stockman points out, every step of the way the stock market was rewarding value. then you have the implementer of , who enabled them to make this bid for allergan,

where, by the way, he made $1 billion or $2 billion very quickly. i have criticized him for having inside information, something that the sec should focus on. stephanie: when this happened, this was a "hate the game not the player." the lachman wove his way through -- bill ackman wove his way through so quickly. fundother major hedge managers put their hands in the air. bill: a thread the needle, he did it once. made $2 billion, and everybody said bill ackman is a brilliant guy for threading the needle, but it will never happen again. now it is a ponzi seem -- now it is a ponzi scheme/free money. fedd: when you have the taking interest rates and the overnight market is zero for 82 months running and they are still in to getting about

whether they can possibly -- stephanie: just because the money is free does not mean you should steal and abuse. bill: every time it did a deal, the stock went up, and the ceo gets through ordered for that kind of behavior. i am great, everything i do is great, and everything makes sense intellectually. forget the accounting. carl icahn yesterday said at the conference that he could smell the accounting was bad. i do not know that he did anything about it, but the feud is over with bill ackman. stephanie: what they did with philidor is not about free money. there is a real ethics issue here, isn't there? philidor isee with some very aggressive business practices that valeant is claiming they did not know was going on. we do not know definitively whether or not that was the case. we hear from a lot of people inside the company familiar with the operations that these companies were super intertwined, and that is

probably a question that it will be open going forward. >> this is something when i talked to investors and analysts that say when you do roll up after roll up, oftentimes you are learning what you are buying as you are going along. that ability to integrate rapidly, sometimes you're finding you have some stuff in their bank you are not totally -- that were -- sometimes you are finding you have some stuff in there that you are not totally -- seven or eight years ago, there was a company in new jersey that is a massive pharmaceutical conglomerate. similar deals that valeant had. they do not seem to have run into the same difficulty that valeant has. will say, most of these roll up do not work. they are facilitated by cheap money. valeant borrow $31 billion in a

few years and just bought the stuff for cash at big premiums, day after day, week after week. jar withcookie reserves that could then be used -- i did not expect that, and problems came along -- and you are not building a real competitive, organic, value-added company. you are building a wall street phenomenon that attracts all the hedge fund guys into the hedge fund hotel, and the faster they come in, the more rapidly the price growth. this is not productive. stephanie: if they put that on wall street, i tried to cut them off. david: we will come back to valeant later, he even on this program. right now to another company in the news -- volkswagen. it seems the hits keep on coming . back here it is hard to

understand what is happening. there is now a report that 800,000 additional cars may be affected, including some that are powered by diesel. hans nichols, explain what is going on. hans: volkswagen self-reported last night that it hundred thousand vehicles were affected on -- that 800,000 vehicles were affected on carbon dioxide. most of the engines are diesel engines. petrolould be a few gasoline engines. first rule, find all the facts and get them all out. what we had last night is either volkswagen is still deep into digging, and they are still finding irregularities, or they are not being as forthright and they are not getting out the fact as quickly as they know them. in some ways, they are committing malpractice. of take the textbook sort

crisis response, that is the more sympathetic explanation. if they are still going through and disclosing in real-time rate irregularities -- in real-time the $2 billion in economic costs could mean that there are more to come, and volkswagen itself has discovered what is at the bottom of this scandal. david: it does feel like it is almost one a day right now. do you have any questions for david stockman or for us? you can send us messages on ib for instant bloomberg, or tweet bloombergtv or our handles. ♪

vonnie: welcome back to

"bloomberg ." there is a leadership change -- mitch williams taking over as ceo from cofounder eric lefkovsky. honda will no longer used to cut air bags cars. takata is facing huge u.s. fines because of defective airbags that were blamed for at least eight deaths and 98 injuries. the world possibly as brewers get another week to talk over proposed deals. british regulators are granting -- anheuser-busch inbev has a week from today to make its formal offer to sab miller. that is latest bloomberg business flesh. stephanie: today we are headed to japan where the biggest ipo surged in its trading debut. japan'ss flocked to

post holdings. brian fowler has more on the story. many retail investors got involved. what is new? brian: this is a huge deal. we knew there was a lot of pent-up demand. the three components were oversubscribed between five times and 15 times, and we saw the share prices rising all through last week. even so, this is a big surprise. shares did not move for the first 30 minutes because offers were so lopsided. say, it is a big deal for individual investors. 80% of the deal went to them. so it is a lot of things. the shares were priced relatively cheaply. there is a lot of upside in terms of what these companies can do, in terms of efficiency, boosting profits. huge brand name, 24,000 branches nationwide. that is more than the number of 7-eleven convenience stores, and they are pretty ubiquitous in japan. it is a big deal for japan and for prime minister aim as well. -- prime minister abe as well.

stephanie: do retail investors normally not have the type of funds that they need to invest in something like that, or are they shut out of these institutions? brian: we were hearing from nomura that through october the capital earnings were running at the number -- at double the normal pace. they dot so much that not have the money, it is that they do not have the risk appetite. mr. abe has found with the steal a brand name that feels close to home for everybody in japan. he has stirred their imaginations. we may see some spillover from this. a lot of people made a lot of money today, and i think it will build some momentum going forward. it is a good thing for the market here. brian, thank you for giving us the latest out of japan and today's global go. brian fowler of bloomberg news. we will be back with more "bloomberg " in just a few. ♪

david: we are joined again by david stockman, who not only was the director of the office of management and budget but really had a poster job. what is going on in washington right now? recently there was a deal taking us into 2017. what do you make of it? david: we had a process than and deals. now, and whatcess they did last week was an outrageous front. they said we are going out of 2017, after the next election. lag in the budget process. if you can make some agreements by then, you will not affect the budget until 2018 until 2019 -- until 2018 or 2019.

if we wait let long -- if we it will beong, impossible to put together a package of the tough measures, revenue-raising, cutting-defense, reforming entitlements that we need. i think they blew it big time. to congratulate yourself for blowing the cap's -- which we can live with -- for kicking the can for a couple more years and forgetting in harm's way, this , i into a business cycle think is a huge mistake. david: what can be done? we have been talking about this for years. you negotiated with tip o'neill. do you think that the chairman, paul ryan, help us lead out -- can help lead us out of this?

david: it has gone beyond leadership and personalities. we now have the polity -- we now have the parties so dug into their positions, half of the republican party now only cares about defense. they want more money for dod, and they will trade anything for it. : we have been talking about it for years. david: we cannot keep borrowing 20 chilean dollars, 22 trillion, $25 trillion. it cannot happen. david: we will be right back with "bloomberg ." ♪

stephanie: you are watching bloomberg go, having a good morning here with the former director, david stockman and

interpreting editor, bill cummings and it is 7:30. we have tom keene straight from surveillance radio. first up the first word from vonnie quinn. kentucky gets only a second gop governor in four decades, matt bevin. defending -- debating two challengers. a fire that killed 32 people in minister- the prime resigned and said his ministry would as well. the fire provoked huge protests. the u.s. tax chief -- the irs says the auditing on federal tax returns has dropped to .8%, the

lowest rate in a decade. some -- i hadhave thought we had some breaking news. matt: we are waiting for breaking news on fox. i will look done here at the morning must-read. stockman looks like -- are you -- are you doing a management thing with a beard? let's go to david stockman's favorite economy -- economist. i was supposed to be shocked -- if his remarks seem startling, it's because the press, including david westin, it is --

it is a point here that you have been a critic of, and the fact is that the republicans continue to look at the evil federal reserve as a whipping boy. david: i think it should be a whipping boy, but the point is, trump is right to keep interest months isero after 82 just nuts. tell did not have to yellen to do it. the people who populate the fed today believe that if they can keep money cheap enough, long enough, it may kickstart the economy, but it doesn't, the evidence is in. we are at peak debt in the household sector. when it borrows, it's at least cycles it back into stock buybacks and deals. it is not causing mainstream growth, it is simply fueling speculation in the financial markets and the inflation of

financial assets, so she should stop and trump is right and i'm glad he is putting up a fifth arm and saying the fed is out of control and that it's an election issue and that's what's wrong with the economy. stephanie: does that mean you are publicly backing donald trump? ivid: i'm not because disagree violently with his views on building a wall on the border and eating all the immigrants out and so forth. all of the bombast and so forth, i have no use for it. when it comes to some court issues that this kind of cozy washington wall street fed , which is creating a dreamland in america for the people who are on wall street -- the bill: in writ about plutocracy, redox and number one or two. david: sooner or later, this

whole thing is going to blow skyhigh. we are in the third bubble of this century and when it blows -- tom: where is it? david: look at the stock market today, the earnings just came in , 75% of the s&p earnings are $93 a share if you count real gap earnings that you don't go to jail for. trailing, thees last time we were there was the fall of 2007. we know what happened next. this cycle is long in the two, there are headwinds all over the world and the fact of the stock market today is at these levels -- matt: easy money is now a global phenomenon. the japanabout post-ipo, i think this is an example of the same and happening. why are we kill investors lining up for the japan post-ipo? it is because they are getting 0% on their savings. stephanie: why do we blame banks though?

it's not the bank's fault. david: were not blaming any banks. the fed is driving behavior in the whole system. so muchis creating distortion in the pricing of everything, stocks, bonds, money , that as a result of that, everybody does the wrong thing. there is way too much m&a. distortion ise not china through as inflation -- does not shine through as inflation. inhave a chart that shows yellow, we put every time the fed hikes and it doesn't like as they hike, it drives up and asian, but that because -- that is because inflation is rising as they do it. they don't that we hiked below 2%. they can only count one or two times were that happened, so why would they do it when we are down here.

if there is no inflation and that's part of their mandate, why would they raise rates now? david: there is massive inflation in financial asset prices, not in goods and services. this is because it is global. all the central banks of the world have done the same thing. the balance sheet of the central banks was $2 trillion, today it is $21 trillion. as a result of that, excess capacity has been created everywhere. that is why oil is collapsing and why concert -- copper is collapsing. there is excess capacity everywhere, that is keeping goods prices and labor prices down. all of this excess credit is being generated by the central banks and it's going right into the stock market that you cover every day. from $40 trillion of debt worldwide in 1994 to --5 billion today? -- 12 $225 trillion today? stephanie: republicans [laughter]

matt: this is the morning must not read. was in your street about him -- in your seat about a month ago and he was talking about the fed role in creating the housing bubble. listen to what he had to say. >> i think the critique of the fed prior to the crisis, and a lot of this is focused on modern trade -- policy. people generally agree that modern trade policy was not the main reason for the housing bubble. one of the ways the fed was responsible was that it did not do enough to prevent bad mortgage lending and there is a lot of reasons for that. one reason was very strong political support for subprime lending because it was creating homeownership so broadly. matt: we heard from bill gross on this subject, yesterday. pitalism does"ca not function well if short-term and long-term yield new the zero bound are low and the yield

curve inappropriately flat." i suspect you are in agreement with that. david: what you heard was unadulterated nonsense. after the.com bust, the interest rate was 6.5%. they took it down to 1%. if you look at ordination of mortgages, and grew from a wanted to have actually in rate to a 5 trillion rate by the spring of 2003. andhousing bubble was off running, fueled by the fed and in the fed cap going by the grease and put in all the gold the lots and all the rest of it. to say that the fed had no role in the disaster we had in the mortgage market, and the growth --credit, which in the time to say the fed had nothing to do with that is just plain nonsense. that is why the book should be titled the courage to print. my view is, it did not take any

courage to print. they did not take any courage to flood wall street with zero cost money when the market, which we all believe in, was trying to -- matt: what would you have done? tom: i said was a greek restaurant on 56th street? i sat and read the 104 page document from secretary paulson about what they were going to do . at that time, public institutions had to act. you are not critical other actions then. -- of their actions then. david: i believe bernanke is a false scholar of the great depression. he xeroxed friedman thesis which was wrong. we said that if the fed -- panicked.

he should've let aig down. tom: what would've been the ramifications -- david: it would've been simple. all of the insurance companies were solvent in aig, they would have been taken over by state regulators. what was not solvent was the holding company. can i finish this, because the holding company had written cdf and picked up nichols and started a steamroller, but it was owned by about 15 giant tanks, including a bunch of socialist country banks in europe that would have bailed out -- tom: our institutions have let those financial institutions go. they only know ramifications. matt: you only had to let one go. if they let bear stearns go. if they'll let bear stearns go, the message would have been across theand clear financial markets that you have a bank that looks like this, leveraged to the health, 50 to one, filled with assets of ceo

and that mortgages, we will let you fail and let the market work its magic and it would have been gone and they would've gotten the message. mr. sullivan would've gotten the message, everybody would have gotten the message that they would not be rescued and of a better figure out a solution. a present state of the two of you wear if this happens again and we know it will, that we will do it better next time? matt: david stockman is correct. look at what the fed has done. the fed lowered interest rates 6.5% to 1%, now it has been at 25 basis points for overnight lending for seven or eight years, whatever it is. it is cointreau or five times worse than it was -- tom: what would be the ramifications of them to come what we are doing is wrong, we will raise one or two steps and sit there?

what would happen to the market? david: nothing. they would probably be a serious hissy fit to begin with. change. were a regime if the greenspan, bernanke, -- en input is gone, [inaudible] matt: look what happened to the hissy fit in august, that was not about china and the slowdown, that was about people thinking yellen might actually raise rates. when the figured out that they would not, and wall street had a hissy fit and said yellen is not going to do it, -- what will happen with the markets? david: this market is going to collapse and if it does not, i will shave my beard. becauseing to collapse

when you give traders and speculators free money overnight, they rolet. they take every kind of position. the dealer. has a pretty good view on what's going on, and he is saying there is immense amount of speculation in the market. nobody owns a government bond, it's all on recall, on the margin the people who bought in cell and sold -- set the price are leveraged 95 25. stephanie: we have to go to commercial, we are getting -- we are continuing this conversation. tom keene, i will let you get back to surveillance radio. my bloomberg terminal is also -- is already flooded with questions. i will take those off when we return. you can send us a tweet, the conversation certainly got our viewers fired up. when we come back -- comeback, kobe online banking industry be the next --

you are watching bloomberg go and we are just getting warmed up. ♪

stephanie: you are watching bloomberg go. the treasury department has started looking into the growing online lending industry. community banks and credit unions have taken aim at these market place lenders, saying they are not subject to the same rules. joining us now is sam hodges, the cofounder of funding circle. is so exciting this morning, we're not letting them go. let's talk about this criticism you're getting. community banks do not look -- do not like what you are up to. >> we talked to many banks about how we can work with them and i think the response has been very. some banks are excited about the prospect of partnering with a small business like lending circle. today we went out about $1.5

billion across five different countries. just because you've done it in the past does not mean the bubble is going -- is not going to burst. why haven't you partnered with banks, established organizations that could show you the path because that it -- >> we have partnered with banks in the u.k. to help them with small businesses that they cannot lend to. here we have one bank that is lending through the funding circle platform and we have been working on a couple of deal through other banks to send borrowers our way. banks,ed to over 100 they are more excited about partnering then feeling threatened. on the u.s. side, we face regulations -- we are already heavily related. we are riveted -- related as a security specialist.

stephanie: what do you think of this kind of business, david? david: i think the regulators should stay as far away as possible. dodd-frank is not solving any problem. if banks are too big to fail, they are too big to exist and should be broken up, but you are not going to regulate into safety. you will simply congest and paralyze the marketplace. the reason that businesses like yours are thriving is that you are not fully in that regulatory harness. we seem to always draw the wrong lesson. the catastrophe of 2008 was due to too much cheap money and banks that were out of control. i would say we made the wrong decision about how to deal with that because we told the fed to do more of it and we let the big banks become even bigger. that it's not a

problem but all those people who got mortgages who should not of got mortgages and ended up having their homes foreclosed on, had there been more regulation over the -- that would not have happened. david: i don't think it was a matter of regulation, you had wall street so geared up to process all these loans and sell securities because there was this massive hunt for yield around the world. created by trends in the system. matt: if you are a manufacturer of mortgage backed securities on wall street, that is what you get paid to do. if you are awarded to do that, you will keep doing that as long as you possibly can. stephanie: a bartender who lives in an apartment in san diego with three roommates, i should let buy a house for $5 million? david: wrote the mortgage? it was a broker, not the banker.

by the there is a difference between -- >> if you're a bank, you take deposits and that has a systemic risk perspective. you necessarily need to be related as a bank. we believe strongly in the power of self-regulation. we and other lenders recently put up a borrower's bill of rights which is around protection of borrowers, disclosure and fair treatment. you will see a lot of responsible practices coming directly from the industry, itself. stephanie: that you very much for joining us. more with david stockman and david cohen, next. ♪

matt: david stockwell --

stockman is still with us. reaganomics would have worked if it had been -- it was mainly proposed and not very much implemented. we had way too much increase in defense that put the budget into deep red ink. we had a tax cut we did not hold. we deregulated energy but not a lot of help, so therefore it is a great theory that remains 30 years later, still untested. question, a tutor given your experience under president reagan, running budget deficits, what do you think of u.s. fiscal policy? david: deficits become addictive. i left because i could not justify what we were doing. a tax cutade too big and too big a defense increase, but you could not get politicians to change course. that is where we are 30 years later, neither party will give any ground and what we have?

$19 trillion in national debt and a 1981 we had $1 trillion in debt. now, politicians think that the debt is free. the weighted average cost on view,s 1.75% and in their it's a rounded error, it is not frightening. when we to go over in 1981, interest rates on the 10 year were 15%. one work, hillary clinton. david: god save us. stephanie: david stockman, thank you so much. still to come, roger altman. ♪

stephanie: tesla shares are on the rise, but elon musk says -- -- janet yellen is

heading to capitol hill, today. it has been a year of megamergers, what will the end of 2015 be like for m&a? roger altman joins us to weigh in. ♪ welcome to the second hour of bloomberg go. david: here -- with us to the entire hour is the chairman founder, robin all -- robert altman. any questions for rogers, please send them to bloomberg go or you can tweet us. let's start with the first word with vonnie quinn. vonnie: developing story from the syrian peace talks in

vienna. is going for agreements that would bring the resistance groups into the talks. russian foreign minister meets with secretary of state john kerry and others. republicans prepare governor seats in -- -- the latest national polls shows the presidential front-runners in a dead heat. the survey by the wall street journal has mark ben carson against hillary clinton. each drew 47%. clinton would beat any of the other republican candidates. those are the tops -- the top headlines. matt: there was a lot going on in the free market. take a look at media earnings. cbs out with third-quarter earnings that beat per share,

but cbs missed on the earning side. it's part of a continuing trend. you can see it does not have ishares shares right now, they are up 3%. fox missed on revenue by a lot. fox film was the big problem versus $6.4e out billion we were looking for. film was $3.8 billion and we were looking for $2.3 billion so film was a big miss. tv and cable also missed, but you can see here that shares are down to the little bit in the free market. u.s. steel, massive miss. loss.llar 18 -- $1.18 is three times worse than analysts estimate.

a hot one today, tesla actually missing on adjusted earnings, by a longshot on gapper earnings. youring its forecast for total cars to be produced this year, but you can see that shares are up 7.8% that may have to do with elon musk giving more details on the giga factory in nevada. we may be expecting production targets to be trimmed even more because there has been a lot of skepticism about how much of them he can make. stephanie: is the giga factory like nirvana? matt: i want to go there. david: it seems like people love tesla. they're third-quarter wall like -- loss widened but they said the company will meet the 2015 production numbers. dorgan liked what elon musk had

to say. >> if you are going to lose money and lose more than analysts expected, this is the way to do it. they reaffirmed that the baseline of the guidance of the deliveries forecast, he also announced executive hires and progress of the -- at the data factory and that was not something we were expecting. they started making some of the tesla energy products, the stationary batteries, and they've already shifted some of that work to the giga factory. that is a big sign of progress, and they also said they will show the model three, which is the breakthrough car where they start to really compete with bmw three series and that kind of a car that is not like it we have a camry or a free us, but the minute is more mainstream and mass-market, a big step toward what must has said his vision is which is to revolutionize personal transportation. stephanie: was take a look at what he said himself. >> this is early data and

besides, it's very positive. of many accidents fromwere prevented autopilot we are not aware of any that were caused by autopilot. this is still early. it's a good indication. stephanie: was the overall view on elon musk? he's talking about autopilot and some people say he is the next albert einstein, a true visionary. then he says things like if you're are not driving autonomous car the next 10 years , it's going to be like owning a horse. what is your view on him? i don't follow the company like an analyst would, but i am fascinated by it. i think he does deserve to be viewed as a visionary and i think the company is visionary. anybody who has ridden in a

driven one, i'm in the former cabinet, they see the future -- category, they see the future. of course, they are all electric. before too long, we are going to see all electric vehicles much more widespread and he is the leader. these vehicles are astonishing. andleration and so forth just a tremendous advance. i'm a big admirer of the company. i don't know about these earnings and so forth, but you are right, the world does love the company, but they love it for good reasons. stephanie: they also love it in theory. let's talk about his ability to actually execute, not just the idea. matt:'s ability to execute is in the cards.

if you take a look at what he wants to do five years ago and if you are writing in one of those cars, you have to be impressed. they don't burn fossil fuels, but they burn through crash -- cash like a dodge heavy with a supercharger. this goes back five years and it's the quarterly cash flow. you can see it is almost all negative and you come down here and it gets worse and worse burning $600 million a quarter. it's a real problem that has to be turned around, or else some other carmaker who knows how to manage expenses better is going to be tesla -- eat tesla. you have general motors doing really well with the whole -- volt. you have bmw coming out with a third all electric car. there is a new one out. there is so much competition from big carmakers that know how to do this may be better than elon musk. stephanie: what does elon musk eat for lunch?

i feel like it's space food. jamie butters, thank you for joining us from detroit. i have to take you to d.c. in just a few hours, janet yellen is testifying in front of the financial services committee and the first of its kind hearing. we are asking what her lawmakers likely to challenge her on? let's bring in winnie. >> we will hear yellen talking about how stable the system is. this is important to a college after the crisis, but she has critics on the hill and republicans are going to come at her like they have a monetary policy, saying that she is overreaching of the fed is doing too much, but they are making decisions from financial institutions. things up for discussion will be doing that too many banks in terms of systemic importance and are we making to make decisions about how much capital they have to happen what they can and cannot do?

lawmakers will see this as similar to the monetary policy, you are asking too much of them and that is hindering the economic recovery. is a new record -- regulation that just came out last week. >> one of the things a lot of people, with thresholds for institutions, $50 billion is already -- where they set that threshold. you have to go through all these extra steps, a stress test and living wills and that includes not just the jpmorgan's of the world, but some regional banks which they should not be in their. that is what we are likely to see in a discussion. stephanie: all of this restructuring we are seeing in the last couple of weeks, deutsche bank to bank, credit suisse, as a direct result of the regulations, is that a good thing? roger: it's just a bank, inc. god for the federal reserve -- thank god for the federal reserve. it worries me to see it increasingly politicized.

but without fair, the federal reserve, this country would be in a much worse place. there are two basic arms of the federal reserve, policy and regulation. side, andulation other regulators, they had a enormous lapse in 2008. they failed. since that time, they have been climbing back, and tightening and in controlling larger banks of all kinds, increasingly tighter and increasingly in a straitjacket of sorts. i think in general, they had done a good job. the question you just asked really pertains to the european institutions which are not

related by the federal reserve. fundamentally, what is going on is regulations tightened all around the world in the u.s. and europe and the european regulators like switzerland have been even tougher. the banks are structuring themselves in response to it because certain types of businesses are less profitable and not excessively profitable as a result of this much regulation. the shape of a of the largest banks five years from now is going to be quite different. some willbe smaller, be much less focused on the wholesale or investment banking side. stephanie: is that good or bad for your business? roger: we are not lenders, we are just advisers. they will continue to advise. it is the capital using parts of their business that are under pressure, so it does not make much difference for us. this is an ongoing restructuring. it is not finished. a lot of these institutions are going to look a lot different, and it's all the fallout of

2008. stephanie: there's a lot of criticism of the other kinds of institution. do you feel that they have overreached and that there is too much regulation for those types of companies? roger: each individual situation -- you have to look at each individual situation, so i don't know whether credentials or institutions like that have been pushed the category they don't deserve. in general, i think the federal reserve has done a good job under difficult circumstance and we are lucky to have them. can you imagine if they had not had the flux ability it had 2008 -- the flexibility it had in 2008? we would have gone into it authentic depression. stephanie: you are in disagreement? the federal reserve, bank

got we had them, but only because the u.s. congress was completely frozen and did not do their job in fiscal policy and still has not done their job, leaving the fed with the only choice left to try to rescue the economy, which they did by pumping in $13 trillion of money. the regulatory role was a disaster before 2008 and i think they have gotten more responsibility after 2008. we don't know whether it's going to work or not. vehicler know if this -- at the regulations are going to work until they are tested and i think we are going to be tested soon because of the ongoing easy money policy and the risk that exists across the spectrum in the capital market. we won't know. even with this wind down authority and the regulatory authority that they have, i can't see them letting goldman sachs fail. roger: step back and ask

yourself, why is this regulatory regime increasingly and the pressure on the banks is just ratcheting up? the answer is it's too big to particular, everyone in the entire system has said never again. taking your point, how do you actually put into effect never again? the answer is that you reduce the risk that any institution could get to the edge of the cliff. you can't say to yourself that if they get to the edge of the cliff that you will rescue them. if the system as a whole micro down, he city yourself you push them so far back from the edge aat they will never be serious chance of facing a too big to fail decision again. but be honest, that is what the country wants. stephanie: they also want more transparency, and i think that's where congress will be pushing onto the fed.

it's probably going to have to be more transparent on things like stress tests and capital requirements. roger: of course regulators are not perfect and in private, they would say we can't do everything right and i'm sure some institutions have been treated a little more toughly then they should have, but in general, they have gone in the right direction and we are lucky to have them. let's hope it remains as independent. matt: you can't regulate without unintended consequences. the questions are, what are the unintended consequences? david: with all the unintended consequences of easy money policy, not in the crisis moment, that kind of makes total sense. that was a crisis management technique, lowering interest rates to near zero. eight years later, when the fed has gone through and set targets for unemployment, and once we reach whatever it is, 5.5% or whatever, we will begin to reduce this, and they had not done it.

i think you have unintended consequences of easy money going on way too long. stephanie: i want to thank when he -- winnie. matt: we have adp out now. the economy added 182,000 jobs according to adp. this private survey, we were looking for 180,000, so actually beating the survey of the -- survey of it. it is interesting, because it is 182,000 is what we were expecting for the change in nonfarm payrolls and have graphed adp payrolls here on my bloomberg terminal. you can see that we have recovered substantially and the starts at the 2009, but we are bouncing around 200,000 the entire time. it's not a great predictor of nonfarm payrolls, but the trend is the same. news. not bad

i want to welcome jason kelly, a friend of bloomberg go, always good to have you here. it will take it some that will take a look at some quotes from around the world. >> leading off, this is>> a sort of fun quote. the media has conducted a witchhunt on valiant -- on valent. this is a way of driving them out. when i first read this, was i thought -- i thought is this from the republican debate, this is from lynn greenberg, a big investor in valiant. david: of course it is not the press' fault. even carl said yesterday that he had a sense that the accounting

was wrong and i find was interesting is bill ackman continues to stand by this company. stephanie: also the perversion of the fact that activist investors need the media, they use it to amplify and escalate their position, so give me a break. that is bill ackman's mojo. david: and of course he is using the media to talk about the media. is it the press -- i'm not a follower of valiant, it is not really the press that is driving this, it's a bunch of investors who have raised all these questions and taken the stock down. i think the press is reflecting certain investors rather than leaving them, which is always case. i don't think the press is responsible. andhanie: what the media investors often do is uncover

things that the regulators do not. jim chambers often says short-sellers are like archaeologists. -- we would've found this way sooner. >> the second quote, we are going to pivot to the art world but stay in finance, stacy cohen him, aie:, this is about lot of people treat their our collections as one asset and they trade within that class. if it's not working to year-end anymore, why not turn it into cash and buy more art? it is interesting to see these wealthy individuals move into art just like they would trade stocks and bonds. stephanie: is more valuable than gold -- it is more valuable than gold. david: are collecting has been going on for decades -- art

collecting has been going on for decades. he's not selling his entire collection. the art market reflects a lot of other markets like it. -- the black for the year -- as you were talking about following historically low levels, that provides the fuel for certain types of collectibles and the art market is a visible type of it. it is consistent with a financial market. stephanie: we have to take a quick break. if you are downsizing and you don't have a walk space, i am happy to lend you a wall or two.

when we return, we are going back to activism, taking a deep dive. they are public, demanding and they mean business. activist investors and the company they go after. ♪

-- there are just so many headwinds, in fact with that failure earlier this morning,

there is so much decided downward pressure here. the lows we saw earlier in the year probably not far out of reach. a sort of reversal to the upside, we will not see that until about 11 29 or so. matt: scott bauer of trading advantage in the cme. more bloomberg go, right now. stephanie: welcome back, we are talking activism. when aig reported earnings yesterday, the ceo came out swinging, saying he would not consider the breakup call. chairmanexecutive roger altman is still with us. you know activists well, but as a policy, you do not work with

them. makes me think about dupont. in the end, -- at the board seats and he got her out. the investing public seems to back activist no matter what, these days. roger: nelson peltz is not only board dupont, he lost the proxy fight. that whole situation is continuing to bubble in many respects. in terms of why activists have been so successful, you're an awful lot of institutional shareholders, especially the active managers who are inclined to support activists. and an activist shows up threatens a proxy fight, a lot of boards of directors are concerned that if it went to a proxy fight, especially if the activist is asking for a portion of the board, a quarter of the seats, that board would lose the fight. there are settlements left and right and you have situations where so the league is --

leading activists have been successful in three quarters of their efforts in achieving some of their agenda. activists almost -- often show up and say here is my six part plan, spinoff this, return that amount of capital and so forth. so the largest ones have been quite successful in achieving at least some of that agenda through settlements with companies as compared to going all the way to the fight. stephanie: why did these companies -- why do these companies need activists to come keep them in check? across the board you will see fidelity, winco, why are these long-term holders holding these companies -- why aren't these long-term holders holding these companies? roger: you have to differentiate between the passive investors and the active investors. they have different views on activism. blackrock inaugurated a campaign a few months ago of long tourism

-- of long-term is him -- long-term-ism. it is not as simple as saying right, why aree the companies doing it before they show up? they are not always right, there have been situations where they misjudged and once they get really in and realized their premises are wrong. many of these are very successful and smart, but it is not the case of the activist is always right. it's not as simple as that. stephanie: i'm so sorry we are out of time. i want you to answer when we come back. we will talk about this, you are stuck with me. we are taking a break. ♪

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a scientist captured images in 10 different wavelengths with each showing a different temperature of solar material. welcome back to bloomberg go. here with us is roger altman, the founder and chairman as evercore as well as bill collins. grieving relatives have a notify the bodies of 33 victims from the crash of the russian airliner. the street journal says plane back. black boxes contain no discussion of a mechanical problem. all 224 people aboard were killed when the aircraft crashed on saturday. just intrude only sworn in as canada's prime minister -- justin trudeau will be sworn in as canada's prime minister. he is canada's second youngest leader ever. more and more the odds are the irs says auditing tax returns has dropped to the lowest rate in a decade.

those are your top headlines. now for a check of the markets with matt. matt: i'm looking at breaking news on the trade balance. we are looking at a narrowing trade deficit. billion and that is narrowed by about 15% versus the prior $48.33 billion. we had that breaking news, we have futures gaining a little bit, although we have a lot of earnings and mrs.. i went through media misses, we also have massive internet sales misses. groupon sees a fourth-quarter loss of one cent and analyst for looking for seven cents. zynga, the cfo step down after the company said it could lose one penny in this current quarter. analysts are respected to break even and zynga is looking to

make it $185 million in revenue. big misses their internet -- they are in internet. mark, can we expect more megamergers in media as we head into the end of the year? >> is always difficult to basically predict in the short run, we'll have a couple of months, left. we expect more consolidation in the media industry. ,t's been very big this year close to $250 billion, up almost 40%. more, the will expect economy is always difficult to predict. david: it strikes me that the big deals we have seen have been on the distribution side. is that going to continue?

other big mergers coming up on the content side -- are there big mergers coming up on the content side? >> what's happening is the drive to scale and cable, wireless, and it's what i would call the scale internet providers. it's very clear that the echo system -- if the echo system has been upset, one a consumer , anywhere, any device on any formfactor and two, advertisers have a strong desire for better measurement, better targeting, a preference for getting higher cpm's, particularly in a data rich medium. infrastructure first, i think a lot of us are speculating around content consolidation, and that may be sort of down the road, but you are right, thoroughly it has been infrastructure and distribution that has consolidated first. david: in your opinion, is that

maxing out? start -- when you start to reduce, you look at your cable operators. there has been tremendous consolidation, arguably not a lot left in terms of scale, certainly in this country. we may see it globally, but you are right. the question becomes when you think about telco, cable, is there some consolidation there, then you look at -- at&t bought a satellite company, directv. in this country, there are less opportunities, but you need to look at outside just the individual cable consolidation, telco and what i call these scale internet providers. you could see some crossover, but it's becoming at least in the u.s. because regular tory concerns, a much tougher game. david: thanks so much. the cohead of global m&a at city. stephanie: is also a former

coworker of bill: -- of bill cohen. we give activists a ton of credit, they get inside these companies and some relies they are wrong, when that happens, they may be stuck on the board, they can change course, but they have caused havoc in cities companies, to his activism fair, is it the right thing? roger: in my view, there are big myths about activism. one is that they are always right, i have personally seen a series of situations where their initial premises -- if the company would do x, y and z, the guy he would be enhanced, and they were not right. i don't want to talk about individual situations, but it's not the case that they are always right. there are some very smart and able ones. a myth about activism is that it's an under looted good. what is an under looted good?

in other words, it is not a good thing across the board. activism has driven huge share buybacks. enormous, unprecedented share buybacks. on those by themselves, good a long-term basis for the companies themselves and the country? the answer is, it has gone too far because of cover rising investment. if you just look at the simple charts on investment, and how investment is -- has proceeded it iss recovery cycle, lower then it historically would be and too low for the benefit of the country and those companies. there is no question that at least at the margin, buybacks take away from capital that would otherwise be used for investment. else, for some situations it works fine for shareholders in the company, situations like apple which generates income rental amounts

of cash, but for others it is not a full -- generate incomprehensible amounts of cash, but for others it is not. by definition, if you are buying back shares, you are not investing in your shares. you basically concede that you do not have any more ideas. that cannot be good in the long run for businesses. time: especially in a long -- bill: it means you're taking corporate cash and buying andorate sock back at price look at what's happened with ibm , which bought a lot of it stock at about 108 but to share, that is not a good use of corporate money. ibm has to have something better to do with its cash than just this sort of financial engineering.

that might be a better use of it than buying it at $180 and have it trade at $140. some people swear by it and have made fortunes doing it, like john malone. others think it is the last vestige of a scoundrel who is buying his stock back at high prices when he has the better to do with his money. david: if he has nothing better to do with his money, he has an obligation to give it to a shareholders. roger: there are a lot of examples of tech companies that generate astonishing amounts of cash and have strong investment in research programs and return the difference to their shareholders. if you look of the total volume of buybacks over the past two years and ask yourself in the long run, is this great for all the companies involved and for the country, i think it is questionable.

stephanie: a tremendous amount of money is being spent on buybacks and volume is huge. one could say the same about m&a right now. m&a is on fire across industries. do you see this slowing down? roger: i don't because conditions have historically made -- historically made for tremendous and as of m&a is high interest rates, relatively high share prices and a reasonable economic and business outlook. those conditions are in place intohey have translated m&a.hy levels of that though the underlying conditions change, i think m&a will continue to operate at a high level. ,t is not the case that m&a depending on how you measure it, is at record levels. what has changed the past couple of years is the size of transactions. dollar volume of global announced m&a is up 40%, year

over year, the number of transactions is up 10% year-over-year. what you are seeing is larger deals, not really more deals. we have record levels of transactions, no, we are at very high levels of the size of transactions. sophanie: these deals are big they require financing and while you're the expert in terms of advising, you have to go to a jpmorgan to get the dough. roger: we are doing just fine. there has always been a role for a good advisor and there is plenty of room for them. ofare doing fine in terms jpmorgan. bill: it's a very different cost structure than a big bank, as

roger is no doubt aware of, there is a lot of money to be made as an advisory firm, advising m&a fields when the m&a market is booming. what no one really asks is if these deals are good for the company's that do them or the economy or for anybody, but -- besides corporate ceos and m&a advisors. david: that was going to be my question because david stockman was here and i think he would say because of monetary policy, we are super hating -- superseding the m&a policy -- superseding -- superheating the m&a policy. bill: is every good -- as every deal a good deal in the cycle? of course not, there are some smart ones and some less smart ones and the judgment of history looking back is sometimes different than it looks at the

time. you have to look at everyone one of these on a case-by-case ,asis, but there are strategic meeting corporate the corporate, transactions occurring. les sponsor driven financial transactions, so some of the excesses you've seen in past cycles are not occurring. you can question any individual deal, inversions are driving some of these, but fundamentally, this cycle is being driven by strategic deals. bill: one of the interesting things that is happening that blows my mind is the dell emc bill. it was incredibly successful leveraged buyout by dell, then taking this huge new risk that he did not have to take for the returns that he wanted, but he sees it at strategic and a huge

amount of debt and we will see. larry ellison thinks it's a great deal, he wanted to buy emc and we will see if dell is really the genius is proved himself. worked onersonally that, and that, and a think you have to be impressed by michael dell. it was bold to take his company private. i know from a couple of comments he has made, he is very happy being private and you have to respect that. bill: it was not easily done. roger: and the company did not in as leverage the status as many people thought. it's not taking on additional leverage. they are borrowing a lot from emc but i respect michael dell. it's impressive what he is doing, but i doubt he is finished in terms of consolidation. i think it's an interesting story and i'm very impressed

with them. david: we have to move on to my favorite topic -- stephanie: there is someone that wins in every m&a deal, the lawyer. bill: and the banker. david: please stay with us. we break down media earnings, next. ♪

stephanie: welcome back to bloomberg go. here is the latest in the bloomberg business flash. victory for airbnb. they turned out a plan that would have limited short stay rentals and forced homes to register. chief financial

officer is getting an award of .15 million over four years the former google vice president -- first use of an anti-spoofing law brings a quick guilty law and the trial of a new commodity trader. that could cause prosecutors to against -- ands when stephanie: we have to get a thing you're going to write about and care about. roger: they convicted him. bill: it make sense to me, i do not know the specifics of the case. stephanie: it is something you are going to write about. roger: turning to media

earnings, we have quite a few, so far, this quarter is looking better with some sort of negative indications we had in the second quarter from media companies. paul sweeney is here with us to discuss. let's start with that let's start with cbs -- let's start with cbs. the second quarter, we had a lot of investors and stocks sold off because we had some week embers come out of the cable companies and some negative comments from bob iger and disney that spooked everybody. this quarter seems to be more reassuring and they turn off the of a lostsitting videos of drivers but at a slower rate. we are soaring to see some flow through some of the content coming, the media companies, fox and time warner putting up numbers that are not blowout but at least they are pretty solid across the board. david: --

one of the things that was interesting was that cbs is an advertiser support a company, but it turns out they are approaching 50% of the revenue and we talked about that, let's talk about what they had to tell us. >> our business is the percent advertising. it used to be 70% but we have intentionally brought that number down. you see numbers like that and i've been doing this job a long time and you see cycles. you see good and bad cycles. the market tends to overreact. david: roger, looking at the earning statements, without about retransmission consent and reverse,, which means the stations are certain to be the networks. this is interesting that they are diversifying away from advertising. roger: i think so the pessimism that occurred after bob iger's comments were in august was overdone. cbs has great assets and maybe it's a better ceo out there in that field but it is hard to

find one that is better than he is. cbs is a really strong and good company, and the change in the company he talked about, reducing the percentage of revenue that is advertising centered has been a good move and if you look at the original content that cbs continuously creates at the network level, pretty impressive. bill: i think this latest thing they announced the star trek series they're going to bring back and then stream onto their cbs go or whatever they're calling it. it is clearly an example of them trying to compete with the hbo's and hulu's of the world. this is simply said they were negotiating with the nfl to get some games like yahoo! did. they will put their content anywhere they can get paid. they have spread out across a number of networks.

they are in london every week. you will see more streaming of the nfl product, but the nfl has to be careful because the networks pay them billions of dollars every year so they have to protect that pool while he tried to develop a digital business. david: one of immediate company earnings have you been paying attention to? >> time warner and fox came out and what investors are paying attention to is the cable network business. that's the business that drive the profitability for these big media companies and we see some concern about core cutting and how that might impact advertising and affiliate sees. that really spooked the market last year -- last quarter and we are seeing better numbers this quarter, so they take away is, there are challenges for these companies, people are cutting dollars are shifting to the internet, but it will be a slower process then some investors began discounting. matt: i have a cool terminal

function that david actually showed me. rbc, relative value, i'm plotting a bunch of large media companies and the size of the bubble indicates the market cap. and they arecbs right at the zero line as far as trailing 12 month eps growth and down as far as revenue growth. they are not doing nearly as well as, say, disney, way over here. disney is almost off the chart as far as both eps growth and revenue growth, compared to the other players in the same space. david: is interesting and takes us to a point. bob iger has a different hand he is playing. a superb job. -- has a much roger: disney has a gigantic film business. david: and theme parks and

cruise ships. roger: and cbs is not in those businesses. the film business of cbs alone -- of disney alone has been huge and so shrewd. they have been in all mostly shrewd in expanding. enormously have been shrewd in expanding. david: this makes it more impressive. roger: les moonves is a throwback cb -- ceo. he is in effect, the chief programming officer. stephanie: he says he loves the content. david: i dealt with him since the days of laura mark, before warner bros. go of my: does favorite shows from cbs, hill street blues and the sopranos. >> the cable world went from being the best business to be in in a media sector because they

had does the revenue streams and great avid -- advertising and affiliates, and i think it will continue to be fantastic and you will see big media companies investing into the cable that they are looking overseas were television rates are lower than in the u.s. where there is more growth -- work -- more room for growth. company that is most international and global, they get more than half the revenue outside the u.s., which is the largest. they have placed some big bets on europe and latin america. they just double down in europe with sports, making an acquisition of eurosport and tied up the european olympic 2020. through they made some big bets on european pay-tv. the dollar notwithstanding, most investors feel like that was a good bet and a good long-term story for discovery. david: looking for work, we have disney coming out after the bell, tomorrow. we want to predict what they do,

but i think bob iger will not make any inflammatory statements. i think he learned his lesson. roger: you have to take your hat off to them. most people thought that the transition from michael eisner would be difficult and it turned out to be seamless. you have to have a lot of -- ig for iker -- iker ger. a lot of talented ceos in the business, today. great point that raises the question of succession at these countries. thank you, we will be back with more bloomberg go. mike buchanan joins us. ♪

david: it is 9:00 here in new york it w and we have 30 minutes fell.he opening felt i

it's "bloomberg ." i david weston. stephanie: i've stephanie ruhle and we welcome our guest host erik schatzker. look at that sock decision . we do not realize that halloween was over. : might be canon is here and he does not have socks as colorful as mine, but he is more important to us. is the chief investment officer at western asset investment management. mike, good morning. thanks for having me. i appreciate it. vonnie: russia is urging the inclusion of opposition groups to peace talks with syria. viennat last week in

with secretary of state john kerry and diplomats from 16 other nations. russia has long back the syrian president. the u.n. would broker the talks. the chief said that a more stable opponent would be used in its advice, but it lost its biggest customer. honda says it will no longer buy from takata. they are facing huge fines blamed for at least eight desperate ohio voters say no to legalizing marijuana for medical or recreational use. both measures were soundly defeated. matt miller is here now with your market check. matt: we are looking at futures up across the board. you can see s&p futures up 6.50 dow futures up 57. we are all waiting for janet yellen to begin giving testimony at about 10:00. she will read her prepared remarks. fun will begin

could and we will be watching obviously for any hint that the fed is closer to meeting interest rates higher in december. as we speak, futures traders are moving up the chances that the in the meeting could 14% as the probability that we are looking at. , and month ago, it was 30%. it seems more and more likely that janet yellen will move rates higher. as a result, you have seen yields climb. we are unchanged on the 10 year, but we have been climbing steadily to a seven-week high as investors sell off the old lawns because the new bonds will have a bigger coupon. three-month low because obviously everyone over there is waiting for mario draghi to go the other direction and expand his quantitative easing program. you can see right now it is trading at $1.09.

that has come into question lately -- will he or won't he? people are now more certain that janet yellen will. it is time for the five stories that matter to markets now. number 1 -- yet heard about it this morning -- the deepening scandal at volkswagen. they say it is not just diesel engines caught up in the problem. found eightreview hundred thousand gasoline cars popped out more carbon dioxide than the company ever reported to regulators. vw shares dropped as much as 11% fatefulry, since that day when the emissions scandal just broke. mike buchanan from winco. mike: here's the thing. people have compared this to the bp scandal. at some point, there is value here, isn't there? mike: i think that is definitely

the case with the wp it is hard to quantify what that liability is going to be. it is certainly going to be significant. if you look at where bonds are trading right now, they're the ratings,uble the high shall on a junk. that's an interesting point where you may want to consider entering. erik: matt, mike is talking about yields on the vw bonds. is there a way that you can feel straigh telestrate that? matt: i have them on my terminal right now. as you can see, as they get ever closer to junk, you can see the yields are 4.39%. erik: that is for a bond that matures in 2049. companies,ny large has many, many, many issues. which ones are you looking at? toe: with vw, we are going

stay a little shorter and protect ourselves with maturity. the company does have a lot of cash. they have a lot of access to revolver. liquidity is very good. you will give up some yield to do that, but we think it is a pretty easy risk reward at this point to stay short. stephanie: i'm going to take you to number two. the struggle in macro land continues. returns in the macro funds were almost the euro for the first nine months of the year and bloomberg has learned that the 11% thanks to currency reductions. itsmacro fund recorded first ever loss this year. this is not the first we have seen. so whether we are talking alan howard, these are hedge fund luminaries in macro masters. what does this tell us about the macro trading environment right now? if these guys cannot do it, who can? mike: it is a difficult macro environment, but it extends

beyond macro. all markets are challenge right now. one of the aspects is liquidity and also investor patience. i feel investors do not have that long-term tolerance that they used to. when you have a situation like this where there is some underperformance, you see it. you see some outflows pretty quick. david: number three story -- are the markets paying attention right now? time warner posted third-quarter earnings and a bs diligenc theyt estimates for the third quarter. it was driven from high revenue from premium channels like hbo and warner bros.. they use strategies to create original hits shows and demand higher fees for cable channels. stephanie: i've got to get your take. david: what's interesting is what is not committed i read the story on bloomberg news which is turner.

jeff comes out of hbo and he decided that hbo is his big bet. they have been an honestly successful. stephanie: it is working. david: it is almost turning into a one trick pony. what else do they have? you want some diversification. the curious thing that was not really featured in the earning statement is what is going on with the turner properties. erik: revenue with turner is down a couple of percentage points, which is more or less flat. there are some easy explanations for that. they did have a big spike in costs a year earlier. things looked disproportionately better. profit year-to-year triple. something is going right at turner, too. they had the major league baseball playoffs. that does wonderful in the third quarter. things thate of the i am now forgetting, but in any case, the numbers speak for themselves. matt: while you're forgetting things, i'm going to bring you back to number two. stephanie: matt miller getting a

little cold today. matt: dan logan as on a conference call right now and he is giving some interesting headlines here on the bloomberg. is saying thate sloppiness and accounting makes it easier for him to short. i think he is referring to certain health care names here. he says there is no sloppiness names, but a cl third of his work a problem. in health those were care. it was a difficult environment he was saying. he generated a lot of out for in q3. aephanie: he also had lots strong positions in our game and baxter. matt: those are strong longs. stephanie: he is the king of time in sheet. it could be a wink wink, kiss kiss to bill ackman, like look at what i'm doing right and what you are doing wrong. mike: it is very fair point.

i was thinking the same thing as you are saying that. stephanie: this is download about his best saying, how do you like me now? there is no place for erik schatzker to get discount pedicures and sushi more than groupon. rich williams is replacing the cofounder as ceo. see, erik schatzker lily knows this company. will become a lead independent director at the company. the on might marketplace also forecasted weaker than expected profit and sales for the current quarter. groupon sales are getting today, trading around 30% in the free market. things that you need to do as a publicly traded company is to grow. they were the only game in town. it was working and new and people never had that. now, there are no barriers to entry. they flooded the market and they

no longer have that edge. just nailednk you it. when they first came out, it was a really good idea, but it's not enough to have a good idea. you have to do an idea that other people cannot copy easily. there are no barriers to entry we speak of. see the groupon price of the ipo and what has been over that span of time. i think it has come straight down. stephanie: before your family goes out to eat, do you have a groupon to see where you are going to go to for one? mike: i have never used groupon. erik: that's not something to be embarrassed about. matt: the kids used groupon. the problem is that the kids are not using groupon. matt: i know a number of kids that use it in their early 20's. you may not hang out with kids. stephanie: that's the problem. you do. matt: looking at groupon shares on the bloomberg and obviously, we are going back to the ipo here in 2011. they have gotten absolutely crushed.

the high was $26.19 and the low was $2.63. erik: it is going to open near a low this morning. that is groupon. here is number four. goldnow these col stars were not awarded by the koch brothers. apple got great grades for combating climate change. nine and 10 companies now have plans to reduce so-called green house gases. hp gotten a and so did seem as a nestle. berkshire hathaway, facebook, and agricultural bank of china refuse to participate in these rankings. might be camming, i do not suppose you are a climate change expert. it always strikes me as so curious to companies, supposedly the backbone of support for at least one of the two main parties in america, which the party being skeptical of climate

change, these companies are doing something about it. on their own. mike: it's not only corporations. investors, our clients are asking us more and more to incorporate principles into how we are investing. there is clearly a bigger and broader trend that work here. erik: i have to ask -- when you tonvestors ask incorporate environmental, social, governance responsibility to the way that you invest, do they indicate any willingness to compromise returns and exchange for that? mike: no, they don't. erik: that's what makes it so hard, right? mike: yes, however they want us to police that. and we see one of these risks, they want to be sure it that they are getting paid for that risk. it is up to the investors and the people putting the money to work to encourage companies through our active voice to price swings at a level that is consistent with those risks.

erik: thank you, mike. those are the five stories that matter to markets now. stephanie: we have might be came in here with us for the hour. tweet us your questions and send us at bloomberg. i have already got 10 questions for this guy. people like you. tom wagner already weighing in. we have mike buchanan in the hot seat. when we come back, we were look andhat it is moving up moving down at the premarket 15 minutes away from the open. stay with us. you're watching "bloomberg ." ♪

welcome back. i am vonnie quinn and here's the latest in bloomberg news. british regulators are giving another extension to anheuser busch and sab miller. they have another week from today to make its formal offer to sab miller. for airbnb whin

could and would assent the 75 day ceiling and for supposed to register for the city could san francisco's costly housing prompted the proposal. and sam druckenmiller is sure that the euro could become bearish on stocks. the reason -- divergence amonte policy between the u.s. and europea. fromposted averages of 30% 1996 through 2010. for a check on the markets, we're going to go to matt miller. matt: taking a look at some of the names that we are watching today. the reporting for quarter, but for the current quarter and 2016, it has issued a profit warning. inect to earn as much as 475 2016 and the market was looking for 518. coors also cutting its revenue outlook and it now expects to earn 4.65.

4.6 $5 billion in revenue and that will bring it in line with the market. next, endowments versus hedge funds. we will show you who is winning the battle. ♪

erik: welcome back. check out today's value proposition where we check out stoke debate. is it better to invest your money in an endowment or a hedge fund. ceo and former chief investment officer at the university of north carolina. mike buchanan is here as well. mark and mike, i'm going to show everybody a couple of tables to just illustrate the incredible dichotomy here between hedge fund returns and endowment returns. the yearmparing for

into june 30 because that is when the college's report. here's what happened to the hedge fund universe -- pretty much less a performance all around. if we show people what happened in endowments, the comparison is shocking. schools like harvard and yale and stanford did find with an average endowment return of 8%. what could be liberal arts colleges or schools like notre dame returning almost 20% in the space of 12 months. stephanie: scott runs investing for the endowment and he's extraordinary. you run a college endowment. what is going on here? start back at notre dame. i was helping to build that portfolio with scott and i'm proud of my alma mater. the biggest thing is the privatece's investments. if you look at the last 12 months through june, stock market was only up 1.4% and the world index and bonds were up 1.8 percent to a traditional portfolio of stocks and bonds was stinky. hedge funds were a little better

and they were up 4%. -- mentioned some steps that's about event driven fund. they're called hedge funds, but they do not hedge. they are long driven strategies. i think it is a misnomer. stephanie: what do you think? one thing explains the dichotomy probably bigger than anything and that is that endowments can be longer term in nature. they do not have to worry about day-to-day flows come outflows, meeting those investor redemptions. and that helps. there is a big liquidity premium in the market today. they can really move to take advantage of that. the numbers that we showed -- about 50% of endowment investments go into alternatives. they tend to be a lot less liquid. , say,you're talking about private equity for example? like timberland or farmland? too. it could be that,

the one common characteristic is that they are less liquid and endowments can take advantage of that. erik: there is a little bit of cherry picking going on here because we are looking at one year's worth of data. have you seen this trend play out over time and is it favoring endowments as time moves on? playsthe trend definitely out over time. if you look at the long-term numbers, they are just as robust. the big difference even over the one-year number, the private equity index is up 1.7% and the capital index is up 21.6 percent and we'll up 26.7%. that is where all the returns a coming from. when i left notre dame back in 1998, the next year, they were at 52% because of venture investments that we made 5-6 years before. if you look at some of the big winners the past year that throw big returns at notre dame and yale, it is investments like j.d..com that may 200 times, not

in%, 200 times your money the venture capital. erik: mark, we have to leave it there. i do want to point out that unc is 9.3% and they wish they had you back. we will be back with mike buchanan after the break. ♪

stephanie: you are looking at a beautiful morning in san francisco, but we are joining you from new york city. you're watching "bloomberg ." michael buchanan is with us but we will stay on california. tesla reported third-quarter earnings yesterday and sales missed estimates and the company loss ever.s biggest the electric car maker tighten the range of 2015 production target to 50,000 from 52,000 cars. that is not a huge difference. elon musk told investors that production has started at the

so-called giga factory and he has found a replacement for his senior executive from google. shares are up now around 8% in premarket trading. talk who surely likes to about tesla, but does not like to lick up early -- wake up early is cory johnson. what do you make of these numbers? . cory: the numbers are interesting. they tighten the range. goal had an audacious saying that they were going to sell 55,000 cars before the year and then they 52,000 and that number is steadily ticking down. still, they have sold more cars in the quarter reported than they ever have before in terms of sales. the sales growth on a sequential basis was tepid. it was just 1%. it is the slowest sales growth that tesla has seen in virtually

any quarter since they released the model s. it is an important thing. i think the other thing that jumped out for me is that the tesla's margins -- based the stock exchange opening. they are clapping and very happy. the more cars that they make and the more cars that they sell, the more they run their factory and the more efficient it should be, right? that is not what gross margin show you. gross margins were down 16% year-over-year. they were down 19% last quarter. this is a disturbing trend because the more you run the factory, the more efficient the factory should be. gross margins should be getting better. not only are they losing money on sales, they're losing more money and volume by selling more cars. that is a disconcerting note as they rush forward to produce yes another car -- yet another car. david: jeff chain is pointed out the ratio between market capitalization and the number of cars they produced and compared it with four.

it is really extraordinary the amount of market capitalization compared to production. cory: this is a stock story and a product story and they are very different. the car is really cool and we are excited that a green car is even possible. the valuation of this company suggests fantastic things in the future. i think it is really important to look at what has happened with the call for me -- coming on a quarterly basis than imagining a world of driverless cars and spaceships and hyperloop's and solar panels and stuff. the ultimate measure of the company is how much cash is left over. build your factory and sell your stuff, how much cash are you generating every quarter? the more you run your business, the free cash flow should hopefully be getting bigger like a real business or an aspiring business and your burn is getting less. every single quarter, tesla is burning a lot more in free cash isw, even though the growth slowing significantly. that is another reason that people should be separating the products on the stock because

they are indeed different things, especially with the model s production not yet underway. they are moving in that direction. stephanie: bucky? mike: you mentioned tepid sales growth. thecurious -- do you think low cost of oil has factored into that? theow that if you look at last two months, it has exceeded expectations. light truck sales have been through the roof. are they suffering a little bit because of that economic advantage is not quite as compelling as it was when it was significantly higher? a carto the purchaser of whose average price is 99 thousand dollars a quarter, we can figure out that it is somewhere between $95,000 and $100,000 probably, i do not know if the big fall in oil prices makes much of a difference for those users. furthermore, the company has probably benefited.

the most extensive component in the car is probably the battery. the fall in the dollar has helped with the fall and the yen. the purchase of batteries is about $4000 cheaper per car. there is another reason those gross margin numbers could have even been worse. break these out and these are just based off of estimates that i've read. there are a lot of factors that go into this. the big driver i think of the purchases of cars in the u.s. has been the growth of subprime lending and the extension of loans and 60 to 72 weeks. i think that is a big driver and car purchases and not a factor when it comes to tesla. david: matt, when it comes to cars, i think of you. matt: when i think of tesla, i think of cory. they have horrible operating margins. we looked at you qs, a great way to screen for stocks of all the carmakers. i will move my mouse out of the way here. are -19%.ing margins

that is clear when we showed the cash burner. i think what is important is that corey mentioned the subprime auto lending and it's really helping a company like tesla. the first quarter experience data show that losing made up more than -- leasing made up car than one third of purchases. the interesting thing is that what is holding back tesla sales is not the fact that people do not want to buy them. indeed, there are lines. there is a long waiting list. the only thing holding back sales of tesla is that they cannot make enough of them to fill the demand. it is a supply issue. cory: it is a great question. it's a really good question for this quarter because it is unclear. they used to tell us what the waiting list was. when it stopped growing, they stop telling us. there's an interesting thing on the balance sheet. the customer deposits in the same quarter which they announce this new model s, this exciting

station wagon crossover thing they have got coming out sometime next year, they have not announced a date of full production. the customer deposits actually declined. we actually know that there are more deposits for the model x with that suggests to me is that the demand for the model s, there is 1% year-over-year growth or quarter over quarter growth in vehicles delivered could they have been making more than have been able to deliver to customers per that suggested need that may be growth is sort of reaching a certain point in the tesla model s then it is not what it does and there is not such a waiting list whatsoever. yes, they are making them to fill orders and they're making more to fill those orders. the gap between how many they make and how many they sell is increasing. erik: we are debating demand versus supply at 50,000 a year. elon musk wants to produce 500,000 cars a year. how on earth does he get there? cory: that is the great hope for the stock.

someday they will not be selling $100,000 cars and $130,000 station wagon, but that they will promise a $35,000 car. he announced a date that they will show off this car in some sort of display. mind you, it was three years from the time that they announced the model s that they pushed the first handmade car off the line and they have yet to have a full production. thissaid, the hope for company is that $45,000 tree car. the problem is that as the full production of the car gets pushed out from 2017 to the first half of 2017 to the last half of 20 72 and sinful production in 2018, all the competition is coming. every major carmaker is looking at electric cars and has them on their lineup. those cars are expected to heart -- start hitting in 2018 and 2019. the electric car market may be more than the tesla electric car market. that is right around the corner. it for a reduction out, it is getting closer to the full competition. you when iink of

think of tesla, but i also think of tech. let's talk about facebook a little bit. you have some reporting on facebook. cory: facebook reports earnings tonight and it's just as exciting a company, but the complete opposite because it is growing fantastically. the growth in a lot of metrics is week celebrating and generating boatloads of free cash flow. the same time that we saw the inability of twitter to add any users in the u.s. and barely add users international, we say facebook and it looks like they are re-accelerated growth in its massive online user base. 3.4 percent year-over-year growth. i think sequential is the right way to look at growth when it comes to users. two quarters of that really taking up again, even as their sales growth was slowing. last number may be incorrect, but the user growth is a promising sign.

users, they are growing the revenue per user and i can make up for slowing user growth. if user growth is excellent picking up, it's a bullish time for this company. have a question about looking beyond this quarter and into next year and the year beyond. analysts are anticipating sales growth of some 36% next year and 30% the year after. still very quick, but they are only looking for profits to rise -- somewhere 36%. there no operating leverage here. why? cory: i think there is a lot of operating leverage in the business, but facebook chooses not to use that. you can see that in the r&d line. the way that facebook will surprise you when they report a quarter is that they may spend a maxtor $100 million in 13 weeks on r&d. they might decide to suddenly build a bunch of data centers or by every artificial intelligence

scientists out there in the companies that they are running. facebook is fearless when it comes to spending in r&d. we look to the purchase of instagram, which seemed like it was insane for a billion dollars a few years back, and now it is arguably the second popular social media platform in the world completely under the wings of facebook. fortuneshas spent best in r&d. they are quite often paying for individuals in the r&d field of stock options and take them out of the non-gap number. when you look at the number of gap earnings results, you can see a big surprise in r&d and that can really hurt profits in the short-term. maybe in the long term, if they invest it well, thus far they certainly have and you can see the benefits of that any long-term. david: cory johnson, thank you for joining us so early in the morning and different scope. let us see where the stocks are trading, matt. cory: the s&p up 1.5 points in the dow up .8. exception with the

nasdaq and you can see why the nasdaq is the biggest gainer. information technology is the biggest gainer in the group. we break it down to a third of a percent. you can see that this is the i.t. portion of the pie right here. media stocks are a mixed bag today. take a look at the different media stocks that were reported. cbs people were happy with people beating on earnings per share, in line with revenue. on the otherfox hand missing revenue by a long shot, especially the film revenue. paul sweeney tells me that really does not matter that much. take a look at real tale stocks and you can see that michael kors is gaining right now. dsw, the shoemaker in columbus, plummeting right now after missing and appointing a new ceo. avon products missing third quarter as well. it's also down about 10%.

let's go straight down to abigail doolittle live at the nasdaq with a look at a notable mover here at the open. abigail, how is groupon doing? abigail: groupon is the one stock we want to focus on this morning. are plunginges after the company missed earningsts and revenue estimates after a shakeup. the ceo has been replaced by brett williams. he is returning to the role of chairman. the shares are up more than 60% your today. erik: very good, abigail doolittle down at the news that could -- at the nasdaq at one of the biggest money managers is putting up his money and this money. stick around. ♪

david: "bloomberg ." welcome

back to -- welcome back to "bloomberg ." stephanie: might became it is still with us and now we are talking about your business. i love talking credit. you have some $450 billion and management, but one of the funds that you help to manage has some pretty big competition. you compete against pemco. i presume as a result that you compete against bill gross and just unlock at double line. your numbers are great. but look at your strategy in the asset class and you are in the 90th percentile. your returns are 80% better than pimco. what is working? mike: we take a team-based approach. we have a lot of experienced heads that contribute to the performance of that fund. i think what has helped recently is that oddly enough one of the bigger contributions of risk has been from the credit side. but yet, credit has not really

performed well. we have had nice diverse of fires with respect to some of our duration calls, some of our curve calls. that is really a hallmark of western asset, that we want to have diversified sources of risk. usually, we are to get for a flap of those right. or five of those records you minimize the damage from the ones that go wrong. they are a offset from the risks that you are taking another areas. stephanie: when i think about risk diversification, especially on the west coast, i think about pimco and all the drama that we have seen happen at pimco and many of their investors did not like all this noise and they pulled out. you were a beneficiary of that. how is all this playing out for you? mike: we certainly were not the only beneficiary, but we clearly performanceink our helps. our view is always as an investment management shop that we control the performance. we do not worry as much about the flows. we always feel that if we get the performance right, ultimately that is going to track assets and do right by our

clients. erik: i want to talk to you about energy because a number of people have come on lately, really well-respected money managers, on the equity side and said that we got to energy and we got killed. stephanie: look at what happened to franklin templeton and high-yield. erik: what is going on in the credit side with energy? mike: we think there's an opportunity in energy. truthfully, we were in energy and we saw opportunity there. timing is everything, but when we look at the sector right now, we think that there is a real disconnect between valuations and the fundamentals. is awe are looking at little different than the equity side. we are at can these companies survive a prolonged period of depressed oil prices? we are finding and number of companies like that. oasis petroleum traits close to 10%. survive, youu say

mean they can continue making interest and principal payments and you're not going to end up owning a bunch of property in west texas mike:. exactly. we are not trying to play for an impaired recovery. we have time to make sure that companies can pay the coupons on a timely basis and ultimately pay us back at maturity and maybe before. we think there is a lot of opportunity. clearly psychology is not there for the sector. you will not be accused of chasing performance by going into it right now. stephanie: this is important. if you're franklin templeton and will not put yourself in their shoes, how patient can your investors be? even if you get the call right and you get carried out in the near term, look at what happens in the financial crisis. if you held out your position in 2008, you are the winner. somebody had to stick out because the investors went to the hills. mike: it ties back to that endowment discussion we were having when we have long-term capital, you can be a little more cavalier about positions in your portfolio.

if you are getting met with redemptions, in order to keep the integrity of the portfolio, you do have to manage that. sometimes you are selling into weakness to keep the position sizing where you wanted to be. it certainly is a challenge and is a challenge that all market portfolio managers have to deal with. erik: any quick thoughts on liquidity in etf's? mike: etf's have clearly been a fast-growing asset within fixed income. around etf paranoia is a little overdone. partstill represent a low of the market. i think it is a well-designed product. the thing that you worry about and this could be longer term is that there is the fundamental mismatch between the liquidity offered by etf's. if you are owning an etf, you want not even minute by minute liquidity, but second by second liquidity. yet, the underlying assets are certainly not that liquid. right now, it is manageable.

as those profits grow, that is something that the markets could be forced to deal with. david: next, we are going to bring you some of the highlights from today's program. ♪

david: welcome back to "bloomberg ." let's take a listen to some of today's highlights. the people who populate the fed today actually believe that if they can keep money cheap that itome along enough may kickstart the economy. trump is right and i'm glad that he is putting up a stiff arm and saying that the fed is out of control. david: thank god for the federal reserve. criticism is fair, but without the federal reserve, this country would be in a much, much worse place. that's given the events of 2008. the answer is too big to fail. in particular, everyone in the

entire system has said, never again. >> if banks are too big to fail, they are too big to exist and they should be broken up. you are not going to regulate them into safety. you are simply going to congest and paralyze the marketplace. give final thoughts from my pecan. this is my question for you. a lot of thoughts on the fed today. that the fed were to raise rates like 2%, would it make money for you or lose money for you? mike: there are two different questions that appear as a company, would we make money or would we lose money? secondarily, our client portfolios. 2%,t were a rapid rise to obviously we are fixed income images. that is going to be brutally painful. if it is a slow rise, which we think it will be, if you look at spread product. of rooms quite a bit for compression. if it is a gradual rate rise, there is quite a bit of spread that can tighten to offset that.

we think clients will get a reasonably good fixed income return and a gradually rising rate environment. with respect to our company, i think that higher yields are ultimately good for fixed income investors. and that should bring in more money. people want income and demographics support that. i think longer-term is good and you forget about a money market that is essentially operating for free right now. firms cano higher, start to charge it little for that business and make some money. erik: winds up bearing the losses though? a mortgage underwritten is going to lose money over the life of that instrument is, in fact, interest rates go back up to where overnight rates of 2%. stephanie: no one loves hearing one minute left and asking questions. mike: i will be sensitive to the time constraint. they do not necessarily have to lose money unless you have to sell that particular asset. that would be the low par and

you would suffer a loss, but the way we think about it, when we buy an asset or any fixed income security, we are buying it because we think it has value to maturity. we do not necessarily have to take a loss. theay be under earning comparable yield and the market at a certain point in time, but we can still get that part and get all of our cash flows. stephanie: we did not get a viewer question in. are the cleveland browns going to beat the undefeated bengals? mike: you know what -- i think they will. the have nothing really to play for other than the spoiler. the browns are kind of an odd team. they like to do that. stephanie: michael, good luck to your browns. buchanan, deputy chief investment officer at western asset management. that does it for us at "bloomberg ." see you tomorrow. ♪

betty: it is 10:00 a.m. in new york and 11 :00 p.m. in hong kong. welcome to "bloomberg market day." ♪

betty: from bloomberg world headquarters here in new york, good morning. i'm betty liu. here's what we are watching at this hour. the markets are clawing their way back from the summit meltdown. what janet yellen's testimony before congress today, which is happening right now, throw any cold water on this rally? volkswagen is driven deeper into crisis. automaker revealing that the scandal is spreading to its gasoline cars as well. cord cutting fears unplugging media stocks as they we can strong earnings from time warner and cbs. can they reverse the tide? some headlines just crossing. services data and julie hyman has the latest. julie: this is coming in as better than